RISING SERVICES EXPORTS MAY PUSH INDIA'S CAD INTO SURPLUS TERRITORY

It's raining external bounties for India as the economy closes financial year 2023-24 on one of the best growth narratives this fiscal resilient exports and downward trending current account deficit (CAD) or trade deficit, keeping, as the Finance Ministry observes, "India's external account stable despite persistent geopolitical headwinds".

- NIVEDITA MUKHERJEE

In fact, the bigger news is that the CAD can be expected to cross into surplus territory this year, as barring any untoward surprises in the upcoming March trade data, the merchandise trade deficit in January to March period of 2024 has so far remained capped, largely unscathed by the unscathed by the Red Sea disruptions.

India's CAD narrowed to 1.2 per cent of the GDP in October-December quarter of 2023 from 1.3 per cent of GDP in Q3, with the wider merchandise trade deficit countered by a pick-up in the services surplus and healthy remittances. The merchandise trade deficit had widened to USD 18.7 billion in February from USD 16.5 billion in January with a spike in gold imports to a four month high of USD 6 billion contributing to the widening in the merchandise trade deficit last month. However, during April-February FY2024, the positive impact of the drop in the value of imports outweighed the negative impact of a decline in exports, thereby leading to narrowing of merchandise trade deficit.

The Finance Ministry also points out that the narrowing merchandise trade deficit is fuelled by falling international commodity prices. "A welcome decline in global commodity prices from their post-Ukraine conflict highs offers some relief," the Finance Ministry observes in its monthly review report. Also a close examination of the World Bank pink sheet database showcases a fall in prices of key international commodities, such as sunflower oil, palm oil, di-ammonium phosphate, crude oil, and natural gas, among others. Due to a fall in global commodity prices, the overall value of merchandise imports was 5.2 per cent lower from April-February FY24, compared to the first 11 months of FY23. Accordingly, India's merchandise trade deficit narrowed from USD (-)245.9 billion during the first 11 months of FY23 to USD (-)225.3 billion in the corresponding period of FY24.